Taxi Wars and the New App Economy

Faster than you can say “There’s an app for that,” the economy is being transformed. Central to this transformation to what has been dubbed the “app economy” is the use of “smart” technologies by cellphones, tablets, and other mobile devices. In 2007, mobile apps were all but unknown. Then came Apple’s iPhone and App Store. As of 2011, upwards of 25 billion apps had been downloaded. App-driven economic innovation, or disruption, is starkly evident in the conflict between traditional taxi companies and the new ride-sharing companies like Uber and Lyft (and Hailo and Sidecar and Flywheel …). The combination of GPS location, instant messaging, and mobile payment created a new avenue for would-be passengers to hire available ride-sharers.

Competition is fundamental to free enterprise, and as technology changes, companies must adapt—or else. But regulatory frameworks also play a large part in modern-day economies. The conflict pitting traditional taxi companies and their drivers against the new kids on the block centers around the “regulatory burden” that taxis operate under—which the new ride-sharing outfits have been able, for the most part, to steer clear of. The contest is playing out in cities across the United States as well as in other countries. In France, for instance, the situation turned violent over the summer as French taxi drivers staged a national strike.

In a sense, taxi companies, some of which operate in cities like a monopoly, have only themselves to blame. As an industry, taxis have been slow to install GPS systems, to accept credit card payments, and to collaborate to make dispatching more efficient. On all these points, the app-based ride-sharing companies like Uber have exploited an edge. They are able to quickly respond to consumer demand, and they typically beat the prices of taxis. Using smartphone location data, they match passengers and drivers more efficiently than the company-dispatch systems.